J.V. Gupta, J.
1. By this application under Section 256(2) of the I.T. Act, 1961 (hereinafter referred to as the Act), the Commissioner of Income-tax, Patiala, requires us to direct the Income-tax Tribunal to refer the following question of law to this court, which arises out of the Tribunal's order dated 29th October, 1974 :
' Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in law in allowing the sum of Rs. 65,318, deposited by the assessee as security money, as permissible expenditure in computing its income for the year under consideration '
2. The facts giving rise to this application are these : The assessee is a registered firm consisting of four partners. The income was derived fromthe business of selling country liquor as a licensed contractor in Bata Chowk, Faridabad, The ITO completed the assessment on 20th December, 1971, at a total income of Rs. 99,160 as against the declared loss of Rs. 19,045. The ITO in particular made an addition of Rs. 65,318 stated by the assessee to have been forfeited by the excise authorities with whom the said amount had been lying as security for the due payment of the annual licence fee which the assessee had successfully bid at the excise auction. On appeal, the AAC upheld the said addition of Rs. 65,318. The assessee went up in second appeal to the Income-tax Appellate Tribunal, Chandigarh Bench, In the order of the Income-tax Appellate Tribunal (annex. ' E '), certain facts, which are not disputed, have been enumerated. It is stated therein that the assessee successfully gave bid for Rs. 13,05,000 at the excise auction for the retail vend of country liquor for the year 1968-69, in the Bata Chowk area, Faridabad. The said auction was held under the Punjab Liquor Licence Rules, 1956, framed under the Punjab Excise Act, 1914, as applied to the State of Haryana. The bid amount is described as the annual licence fee and was payable in 23 equal fortnightly instalments. According to condition 15(iii)(a) of the auction, the assessee as a licensee was entitled to deduct from the instalments of the licence fee such amount of still-head duty as had been already paid by it. The assessee was to receive its supplies of country liquor either direct from the licensed distillery or from a contractor holding licence for the wholesale vend of country liquor and in either case the purchase price so payable by the assessee was to include the element known as still-head duty. Thus, the actual licence fee to be paid by the assessee would have been ' nil ' if it had purchased the total quantity of liquor expected to be lifted to cover the entire annual licence fee. According to the Punjab Liquor Licence Rules, a sum equal to 5% of the annual licence fee had to be deposited in lump sum by the assessee as a security within a week of the date of the excise auction at which its bid was accepted. The amount of security lying deposited in the instant case as on 21st March, 1969, was Rs. 65,318.40. Again, according to condition 15(1) of the excise auction, the amount of security was to be adjusted from time to time against arrears, if any, of licence fee instalments and against the penalty, if any, levied for breach of the conditions of the licence. The balance security (namely, after adjustment as aforesaid) was refundable to the licensee at the end of the financial year, namely, on 31st March, 1969, in the present case.
3. In this case, the assessee fell in arrears of the licence fee to the extent of Rs. 3,75,895 as on 21st March, 1969, and it received from the Excise and Taxation Officer, Ambala, a notice to explain by 27th March, 1969, as to why the available security amount of Rs. 65,318.40 should not be adjusted against the said arrears of licence fee. The assessee instead of furnishingany explanation before the excise authority, in compliance with the said notice, approached the High Court for the issuance of a writ of mandamus. The High Court as per order dated 23rd July, 1969, held that the licence fee in cases like the instant one actually represented still-head duty payable by the retail licensee on purchase of its supplies of liquor from the licensed distilleries or wholesale licensees, as aforesaid, and that being the position, no licence fee is recoverable in respect of the quantity of liquor that was not purchased or lifted by the assessee as aforesaid. Still, the security amount of Rs. 65,318.40 remained unrefunded to the assessee on the expiry of the financial year 1968-69, and, according to the assessee, the said amount of security stands already forfeited. However, there is no material on the record to show that the so-called order of forfeiture was not merely a direction for adjustment of the security amount against the arrears of licence fee. The revenue did not suggest before the Tribunal that the failure to pay any instalment of the licence fee entailed a criminal penalty nor was any other breach of the condition of the licence or of any excise law pointed out to them in support of the plea that the forfeiture of security resulted from a violation of law and hence the amount in question could not be allowed as a business expenditure, From this, the Tribunal concluded that just as payment of licence fee would have been an allowable expenditure, the adjustment of security against arrears of licence fee is also equally allowable. Consequently, the appeal of the assessee was allowed and the addition of the security amount made towards the income was deleted.
4. Mr. Awasthy, learned counsel for the revenue, argued that the forfeiture of security amounting to Rs. 65,318 was due to breach of the terms of the licence for auction, and, therefore, the Tribunal was not right in law in allowing the sum of Rs. 65,318.40 deposited by the assessee as the security as permissible expenditure in computing its income for the assessment year 1969-70. We do not find any force in this contention. The finding given by the learned Tribunal in its order dated 29th October, 1974, is that the security deposited was adjusted towards the arrears of licence fee and the same was not a forfeiture by way of penalty for the breach of any term of the licence, etc. On such a finding, no question of law, as sought by the revenue to be referred to this court arises. Consequently, we dismiss the application with costs.
Rajendra Nath Mittal, J.
5. I agree.